Friday, March 18, 2011

In light of Mr. Harper's promise to Canadians to hold the line on spending and cut the Federal deficit by another 25 percent in the 2011 Budget due for delivery next week, I though I'd take a look at Mr. Flaherty's attempts to prognosticate about all things fiscal since he began his tenure as Finance Minister back in May 2006.As well, I'll look at Mr. Flaherty's predictions in light of Parliamentary Budget Officer Kevin Page's conclusions about the Conservative plan to return to fiscal balance by 2015 - 2016 (hint - he says that they won't).

Mr. Flaherty's first budget was delivered on May 2nd, 2006. Here's what he predicted for Canada’s debt-to-GDP ratio:

Here's what he predicted for the overall fiscal balance with accompanying text from his slide show:

The 2005 - 2006 fiscal year had just ended with an $8 billion surplus (thank you Mr. Martin) and Mr. Flaherty was proposing that every year, debt would be reduced by $3 billion with surpluses of $600 million in 2006 -2007 and $1.4 billion in 2007 - 2008. Attaboy Mr. Flaherty - nice Conservative numbers there.

Just in case we should think that the Conservative government didn't see bumps in the economic road, here is a slide from the government’s "dog and pony show" expressing concerns about the real estate market in the United States, which just happened to be peaking at the time, and how the issue could impact Canada’s economy:

Mr. Flaherty's second budget was delivered on March 19th, 2007.It promised a "Stronger, Safer, Better Canada". Let's hope so. For the fiscal year 2005 - 2006, debt was reduced by $13.2 billion (thank you again Mr. Martin) and for the 2006 -2007 year, the government planned to reduce the debt by an additional $9.2 billion. Mr. Flaherty was sticking with his "talking point" about "showing leadership" by reducing the debt by $3 billion every year until at least 2012 - 2013. This would bring the federal debt-to-GDP ratio to below 30 percent by 2008 - 2009 and to 25 percent by 2012 - 2013. Here's a pretty graph showing how good things will be:

Just in case Canadians didn't get the point, here's a really amazing promise from the Harper government.

"To complement the goal of eliminating the country’s net debt, the Government will publish a comprehensive fiscal sustainability and intergenerational report with the 2007 Economic and Fiscal Update. The report will provide a broad analysis of current and future demographic changes and the implication of these changes for Canada’s long-run economic and fiscal outlook. The publication of a report on fiscal sustainability is motivated by the Government’s view that maintaining sustainable public finances at all orders of government is a critical condition to achieving intergenerational equity and strong and sustained economic growth." (my bold)

Hey, they were actually going to rid Canada of its debt albatross!How often do we actually hear that from politicians at any level?

On to Mr. Flaherty's third budget which was delivered on February 26th, 2008, just before la merde hit the fan. Once again, the government came up with the cute moniker "Responsible Leadership for Uncertain Times" even though, at the time, things were really not as uncertain as they soon would be.

Mr. Flaherty announced that the Harper government had already reduced the debt by $27.4 billion although, if you look at the following chart, it's quite hard to see where he actually came up with that number. Mr. Flaherty planned to reduce the debt by $2.3 billion in 2008 - 2009 and $1.3 billion in 2009 - 2010. Only one year into his promise of a $3 billion a year debt reduction program and he's already reneging even though times are still relatively good. But, fortunately, he projects that the surplus in 2010 - 2011 will be $3.1 billion and will rise to $5.3 billion by 2012 - 2013. I think we all know how that story ended. Anyway, here's Mr. Flaherty's graph showing how he still plans to average out the $3 billion average annual debt reduction over 5 years between 2008 and 2013:

Fortunately for Canadians, Mr. Flaherty predicts that by 2012 - 2013, total debt reduction by the Harper government will be more than $50 billion!! This will allow the government to meet its debt-to-GDP ratio to 25 percent by 2011 - 2012, three whole years ahead of schedule!! We are so, so lucky, aren't we?

Onward and sideways to the 2009 Budget which was delivered on January 27th, 2009 right in the thick of the brown, glutinous matter hitting the rotating device. This one was named "Canada's Economic Action Plan", you know, the name we see on all of those signs that seemed to sprout like dandelions in the spring? Remember, the signs that cost taxpayers millions of dollars to print and install? In this budget, Mr. Flaherty seems to avoid the issue of paying off the debt for some reason or another. He does state the following:

"The debt-to-GDP ratio is expected to increase from 28.6 per cent in 2008–09 to 32.1 per cent by 2010–11, as a result of projected deficits. The debt-to-GDP ratio is projected to be below its 2008–09 level by 2013–14. Canada’s net debt-to-GDP ratio will remain below other G7 countries over the forecast horizon. The Government’s priority is to support the economy. The Government will use budget surpluses first of all to repay the deficits expected in the upcoming four years." (my bold)

Oops, so much for that ever-declining debt-to-GDP ratio and right, like budget surpluses are really going to happen any time soon! Here's a graph showing the changes in the debt-to-GDP ratio in the past and future and notice the tiny, insignificant, nearly invisible to the naked eye rise to just over 32 percent in 2010 - 2011:

Here's what else Mr. Flaherty had to say about his deficit spending habits:

"After this adjustment for risk and before accounting for the impact of the actions proposed in this budget, the Government is projecting a small surplus in 2008–09, followed by deficits of $15.7 billion in 2009–10, $14.3 billion in 2010–11, $8.3 billion in 2011–12, $2.3 billion in 2012–13 and a surplus of $5.5 billion in 2013–14."

So basically, balance is a thing of the past and the deficits are going to be around for a little while but, not to worry, they are quite small and things are well under control. Quick as a blink (if a blink takes 5 years) and we'll be back on track in a surplus situation and paying off that debt that decades of Liberal (or maybe that should read Mulroney amongst others) mismanagement inflicted on Canadian taxpayers!

Onward to the 2010 Budget which was delivered on March 4th, 2010. It looks like the Conservatives were either trying to show restraint or had run out of clever budgetary catchphrases because this budget had the same "Canada's Economic Action Plan" moniker as the 2009 Budget with the addition of a "Year 2" stuck on the end like a carbuncle on a buttock.

Once again, the theme of debt repayment has vanished into the ether. Instead, it has been replaced with a lot of talk about Mr. Flaherty's plans to return to balance. Here are his proposals and projections:

"The deficit is projected to be cut by almost half from $53.8 billion in 2009–10 to $27.6 billion in 2011–12. This significant drop in the deficit for the most part reflects the Government's commitment to make certain that Action Plan stimulus measures expire as scheduled on March 31, 2011. The deficit is projected to be cut by two-thirds from $53.8 billion in 2009-2010 to $17.5 billion in 2012-2013.

The federal debt, measured in relation to the size of the economy, is projected to increase from 29 per cent of GDP in 2008–09—the lowest debt ratio in 29 years—to a peak of 35.4 per cent in 2010–11. The debt ratio over this year and next will be about equal to the ratio in 2005–06, when the Government recorded a $13.2-billion surplus. In 2011–12, following the expiry of the measures in the Economic Action Plan, the debt ratio is projected to fall once more to 35.2 per cent of GDP, and to continue to fall to 31.9 per cent of GDP by 2014–15."

Here are two graphs showing the projections in monetary terms and in terms of the surplus/deficit-to-GDP ratio:

So much for the year earlier deficit projections of $15.7 billion in 2009 - 2010 (off by $38.1 billion), $14.3 billion in 2010 - 2011 (off by $34.9 billion), $8.3 billion in 2011 - 2012 (off by $19.3 billion) etcetera ad nauseum that he predicted just one short year earlier.

Here's a graph showing the new projections for debt-to-GDP - notice how much worse the numbers look than one year previously:

Well, so much for the debt at 25 percent of GDP by 2011 - 2012 that Mr. Flaherty predicted just two short years earlier in his 2008 budget. We'll be very lucky if it's below 35 percent by 2013 - 2014.

Since the Conservatives are so fond of reminding Canadians about things that Mr. Ignatieff has said over the past decade, I'd like to remind voters what newly minted Reform MP Harper said in a 1995 question and answer period after he gave a speech to a meeting of the National Citizens' Coalition about his impressions of Alberta Premier Ralph Klein's attempts to balance budgets and reduce debt:

"Although I can't speak of the details because it is not my area of expertise, what Mr. Klein is doing in Alberta is, in principle, what governments need to do. He is taking a look at a situation that is unsustainable financially and he is taking the steps necessary through expenditure reductions to eliminate that financial uncertainty on a permanent basis within the life of a single Parliament. That is the only way it ever gets done. Any politician who says he is going to do it over two Parliaments is never going to do it. That's the golden rule. That's something that you can learn from Ralph Klein." (my bold)

Apparently, Mr. Harper is either forgotten his golden rule or is just ignoring it in the face of the reality he has created for Canadians.Apparently, it is going to take his government at least two terms to achieve what he believes can only happen in one.

I think that's more than enough to digest for the time being. Yes, I am well aware that economic changes happen very rapidly in both directions but, it concerns me that the Harper government is projecting a return to balance just in time for the next recession. I hope that, at the very least, I’ve made my point that it really is interesting to look back 5 years to see just how numbers regarding government fiscal matters, not to mention the word of a politician perpetually in campaign mode, really aren't worth the paper they are written on, are they? It's also interesting to look back just 5 years to see how the best-laid plans of government can come off the rails so quickly and how rapidly the public (and the mainstream media) forget what we were promised and are hoodwinked into believing. Politicians of all stripes are well aware that both the public and the mainstream media have very short attention spans. In light of that, let's all make an effort to remember this issue the next time that we enter a little curtained booth, pick up our stubby pencil, hold our noses and mark an "X" beside the name of a person that we all know is most likely unqualified to do the job that we're electing them to do despite what they tell us.

It's also interesting to look back just 5 years to see how the best-laid plans of government can come off the rails so quickly and how rapidly the public forget what we were promised and are hoodwinked into believing.

Subscribe To

About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.